CME and Cboe Bitcoin Futures are a “Unique Animal” Capable of Price Manipulation

Two major firms, Chicago Mercantile Exchange (CME Group Inc) and Chicago Board Options Exchange (Cboe), are set to offer bitcoin futures this month. One grave fear is price manipulation, as the industry’s principal regulator, Commodity Futures Trading Commission (CFTC), explained in an interview this morning.

Bitcoin Futures “A Unique Animal Unlike Any Commodity”

The CFTC is the main regulator of industry contracts, and is anticipating cryptocurrencies into its policy scheme.

“I think it’s really important for people to understand,” Mr. Busch continued, “the process by which a new contract gets created, by the CME and other exchanges, there are two paths you can go down: a self-certification process and then there’s a written approval process,” he clarified.

CFTC has been on the defensive for a while, as market heavies such as Interactive Brokers and its chairman, Thomas Peterffy, took a full page advertisement to warn against and actively urge such contracts be separated from the rest.

“Most of these guys come through with self-certification,” Mr. Busch noted. “We get involved and take a look at things because bitcoin is so unusual. Our chairman has said this is a unique animal unlike any commodity we’ve looked at before.”

Manipulation

“We got involved with them earlier in the process. We modified, or encouraged them to modify, parts of the contract. The margin is much higher than what they originally came to us at,” Mr. Busch acknowledged.

An interviewer interrupted, “Is it safer? Will it be safer?”

“What we’re trying to do is show people that the exchanges,” he answered, “they’re the ones looking at the underlying cash contract to make sure it’s not manipulated. Our role as a derivatives regulator is to make sure the futures contract is not manipulated. We’re going to do that for sure. And we’re going to continue to work with the exchanges just to make sure bitcoin is not manipulated in its use on the exchanges.”

“This is really important for people to understand looking at bitcoin: the underlying cash market is not regulated at this point,” he emphasized. “And I think it’s important for investors and everybody else looking at bitcoin and other currencies to keep that in mind when they’re trying to make a decision on what to do with it,” he said.

He was asked about the risks with a commodity trading within unregulated and highly regulated markets.

“It’s a green field for sure. If we talk to anybody within the agencies, they say, one of the biggest challenges is the price volatility,” he said, noting other products within the same markets are themselves volatile. “We’ve run stress-tests on them, and we’re moving ahead with it. I think the exchanges are comfortable with it as well.”

The regulator was put in the awkward position of defending bitcoin, and for the rest of the segment he actually did a pretty good job. The appropriate level of margin, hedge funds salivating at cornering bitcoin in order to bet against it, arbitrage opportunities, all of it, he said, were market mechanisms designed to mature this “unique animal.”

What do you think about futures and their impact on bitcoin’s price? Tell us in the comments below.

Images via Pixabay.

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